I’m trying to find a succinct and comprehensive explanation of RDR and what it means for consumers but so far I’m struggling so I’m going to try and piece something together from what I can find which, is mostly how it will affect advisers.

Interesting that a change to the investment market that is intended to benefit the consumer does not appear to be very well publicised. In fact, I searched for it on the FSA consumer website Moneymadeclearand Icouldn’t find anything.

I think quite a few people would be grateful if the FSA started to make the public more aware of what to expect.

RDR = Retail Distribution Review

In the words of the FSA:

“We launched the Retail Distribution Review (RDR) in June 2006 to address the many persistent problems we had observed in what is now, over 21 years of regulation of the retail investment market. Insufficient consumer trust and confidence in the products and services supplied by the market lie at the root of what we are seeking to address.”

• Providing greater clarity for consumers about the advice service being offered. There will be a clear distinction between independent advice and sales advice and a natural link with the proposed free Money Guidance service.

• Raising professional standards of all advisers. To boost consumers’ confidence in the industry new minimum qualifications will apply for different types of advice and as a major development there will be a Professional Standards Board.

• Modernising the way advice is paid for by removing the possibility of commission-bias and ensuring the cost of all advice is clear to consumers whenever it is given.

• Introducing a new standard for independent advice by ensuring advice is unbiased unrestricted and extends to all types of investments. Independent advisers must agree the cost of financial advice with customers up-front.

So that all sounds very nice but it doesn’t explain how any of it will be achieved so by taking each point and expanding with what I have found out so far….

1/ Providing greater clarity for consumers about the advice service being offered. There will be a clear distinction between independent advice and sales advice and a natural link with the proposed free Money Guidance service.

To achieve this, advisers will describe the advice they provide as either ‘independent’ or ‘restricted’.

2/ Raising professional standards of all advisers. To boost consumers’ confidence in the industry new minimum qualifications will apply for different types of advice and as a major development there will be a Professional Standards Board.

Fairly self explanatory. Advisers will need to be more highly qualified to provide advice and have specific qualifications to advice in specialist areas.

3/ Modernising the way advice is paid for by removing the possibility of commission-bias and ensuring the cost of all advice is clear to consumers whenever it is given.

This is good for consumers because in the past, advisers have been known to sell a product that pays higher commission and makes them more money instead of a product that is of the most benefit to the consumer. However, this also means advisers will no longer receive commission from product providers which is currently how they earn a living.

4/ Introducing a new standard for independent advice by ensuring advice is unbiased unrestricted and extends to all types of investments. Independent advisers must agree the cost of financial advice with customers up-front.

This is how advisers will earn a living after the changes take effect, by charging the consumer a fee for the advice/service.

Sounds OK but there is considerable debate about the true benefit of the proposals.

There can be no argument that taking away commission bias will be good for consumers but many predict that charging a fee for advice will result in a very high percentage of former customers going to high street banks where they don’t have to pay but they wont get advice, just the banks own products.

This will actually restrict peoples access to the full range of financial products on the market instead of making them more accessible which, is one of the key concerns of the review.

It is a concern that truly Independent Financial Advice could become something reserved for the wealthy.

This is a concern (mainly of advisers) because historically commission can be very good and advisers want to earn the same levels of income which means charging a high fee.

By charging a low fee to a lot of people a firm of advisers could conduct higher volumes of business and keep turnover up but there would be more work involved so earnings are still likely to be reduced.

Making financial products accessible to the public in a fair manner appears to be the main concern of the FSA, not how much advisers stand to make.

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